The Best Thing to Happen to America in a Long Time

It’s hard to describe how happy I am to see Walmart facing a slump. I’m delighted to see that the cause of Walmart’s problem is the 2% increase in Social Security withholding taxes.

It’s not just Walmart that is feeling the pinch from higher payroll taxes. According to today’s WSJ (link) damn near every company that has a retail sales base is getting nicked.

We are witnessing what happens when tax rates go up. There is (new) definitive evidence that raising taxes decreases consumption. That notion is an old one, but I think the reality that is now being proven out in real time has to make a difference in how people think about taxes, government spending and the real economy.

Who is responsible for the increase in payroll taxes that is causing all the damage? Don’t blame the evil Republicans for this one. The liberal wing of the Democratic Party INSISTED that payroll taxes had to go up on January 1. Want to blame someone for the slump in retail? Blame Harry Reid (D-NV).

Why would liberal Democrats want to whack their base with higher taxes? Easy answer. Because they love Social Security more than anything else. They would sacrifice anything, including the economy and their political base, to protect SS from the criticism that it was no longer “Off budget and self financed”.

What an idiotic position. And now those who fought to get the full 12.4% tax reinstated are going to have to pay the price. The evidence is overwhelming; higher payroll taxes hurt the economy.

I've felt alone the past 4 years while writing articles on a weekly basis trying desperately to make the point that SS is at the heart of America’s economic problems. I have been vindicated. The ranks of those who will point fingers at SS is going to swell. Those apposed are now going to include all of the big retailers (and their shareholders). That will be a tremendous boost for those who are crying for substantial changes in America’s biggest entitlement program. I can’t wait for ‘them” to publicly come on-board to the opposition.

We are living with a program that was designed 75 years ago. Everything has changed – but not SS. The assumptions that were used in the 1930’s are no longer valid today. The ratio of workers to beneficiaries has fallen by 70%. The ratio of worker’s income to GDP has fallen steadily (the rise of the robots). We have substantial changes in expected life. The most significant challenge to SS is the Baby Boomers. Not one of the Boomers was a twinkle in the eye when SS was created.

1935 Plymouth - the year SS was created

America is driving a 77-year-old car. The car is dangerous. It has none of the modern safety devices; it burns leaded gas and has asbestos brake pads. It weighs twice as much as a new car, and only gets 8 miles to the gallon. Yet a small portion of the Deciders in D.C. have blocked any chance of bringing SS up to date, and making it safe to drive for the next 20 years.

The Social Security Trust Fund has said that to “fix” SS would require an immediate and permanent increase in PR taxes of 2.2% (above the 12.4% today). Based on the evidence of the past few months it’s easy to conclude that a tax increase of that magnitude would push the economy into a recession – Once in a slump, the economy would be hard pressed to recover.

Not only would higher PR taxes kill the economy, it would hurt lower paid workers the hardest. The evidence from Walmart reconfirms the fact that SS taxes are very regressive. They hurt the base of people that the liberals claim they are trying to protect. How can Senator Reid defend that outcome? He can’t.

There is an alternative. It would mean that we would have to junk the old clunker and get new, safe, energy efficient car. The new car would be expensive, but the payoff would be worth it.

SS taxes can’t be eliminated. The program is too big and very hard to unwind and IT IS needed. But SS taxes could be reduced by 3% if changes were made (Employer taxes would remain the same, worker’s payroll tax would fall from 6 to 3%).

The changes required to achieve the reduction in taxes have been discussed for years. There has to be changes in age eligibility over a longer period of time. Changes to inflation adjustments have to be made. There has to be an immediate means tax on benefits to fill the Baby Boomer bucket. The means test HAS to be based on both income AND assets. You can’t be a multimillionaire and get SS checks. That has to stop. Now. SS is, and always has been insurance. If you don’t need the insurance, you don’t get paid.

IMHO if individual payroll taxes were cut 50% from the current level, the economy would prosper. Unemployment would fall, incomes would rise. Federal tax revenues would increase, in the process, the deficits would fall. A permanent reduction in payroll taxes is the only chance I see for a sustained expansion of the economy.

So to the Execs at Walmart, and all of those other retailers that are feeling the SS pinch, I say "Welcome to the club". You can be the wind behind the sails for the changes that are needed. Just this once I will say that what is good for Walmart, is also good for America.

Note: Stan Druckenmiller (ex Duquesne Capital) was on TV last night with Maria Bartiromo . Stan is a very sharp guy. He said the same as I have. It’s idiotic that he gets a check from SS. The $200k he might get back in his life is not going to change his spending one bit. But it would make a world of difference to those who are making $40k a year. The Zero Hedge link to the Druckenmiller interview: Link

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Brucie does his little act in support of the GOP which desperately needs new, phoney wedge issues. I propose shrinking the GOP to a size that can be "drowned in a bath tub" and then replaced with a real American Conservative party. A party with grass roots not corporate funding.

The bottom 5th of the state’s non-elderly families, with an average income of $12,600, spent 11.1 percent of their income on state and local taxes. In comparison, the wealthiest 1 percent, with an average income of $2.3 million, spent 7.8 percent of their income on state and local taxes. The question is: How many tax payers at the bottom are needed in order to keep the librarian, who retired in San Diego with a $200,000 annual pension, traveling the world first class, paying for her yoga and spa days and paying for her insulin shots? Immigration reform?

i agree. taxing the middle class affects the economy much more than taxing the 1%. the reason is money floats. the most effective place to drop money if the economy needs to be juiced is at the bottom to assure all of it will be spent on the things that assure the middle class gets a paycheck that will also be spent on the things that make the 1% wealthier. it doesn't matter where the money come from, whether it is a direct grant from .gov(deficits don't matter) or a reduction in taxes(deficits don't matter). this is what should have been done immediately upon meltdown but the money was spent on the least effective place, at the top where it was spent supporting bad money instead of new investment or simply spent in the market place.

as far as ss. the math doesn't work. a new model is needed. the answer is relatively easy and cheaper. the foundation is a .gov deposit in an interest bearing account reflecting a 70 year bond. example: 30000 deposited at birth bearing 5% interest(historically cheap) would double every 14 years or 5 times until it matured. 30 to 60 to 120 to 240 to 480 to 960,000 dollars at maturity. the original deposit could be paid out at face value from the employee's paycheck. example: 1000 dollars/year over 30 years, 20 dollars/week. actuaries can figure out the details but it is a simple durable model. it is utopian, however, so you will never see it happen.

the answer is relatively easy and cheaper. the foundation is a .gov deposit in an interest bearing account reflecting a 70 year bond. example: 30000 deposited at birth bearing 5% interest(historically cheap) would double every 14 years or 5 times until it matured. 30 to 60 to 120 to 240 to 480 to 960,000 dollars at maturity. the original deposit could be paid out at face value from the employee's paycheck. example: 1000 dollars/year over 30 years, 20 dollars/week. actuaries can figure out the details but it is a simple durable model.

Is this a joke?

You realize....interest payments have to COME FROM SOMEWHERE. Money doesn't automatically multiply. If you're earning 5% on a $30,000 investment today, you're doing very well.

psst. banks pay interest on savings. that is how they make their money. i am sure there is a bank or two that wouldn't mind that sort of deposit on account. maybe one can be created as a quasi .gov organization that makes mortgage loans. that is why banks should be considered a utility, a public service. a 70 year bond is not the same as passbook savings. 5% is historically low in that time frame.

Look: you can put whatever figures you like in a spreadsheet, but the end-result that comes out is based on your ASSUMPTIONS. You're assuming a 5% rate of return because that's what everyone's been trained to do, but there IS NO 5% rate of return these days. Banks get the money to pay in interest to the savings accounts from the interest payments they *receive* from people who take loans.

How is it going to work when no one is taking loans, or when the interest rates on the loans taken are far below the 5% the bank has to pay out?

If you're saying the government can just print money as needed, fine, but that's not any different from the current system. It doesn't improve anything.

i don't know why but here goes. banks can only lend money based upon what their deposits(reserves) are. the interest rate on savings is based upon what the banks NEED to pay you to attract your money for deposit. this is based upon loan demand. if there is loan demand they will pay you more for your deposit because people are willing to pay more to borrow money. yes, the demand for money is low so the interest the banks pay for deposits is low because they don't need your money. (there are other factors in the current market but that is the normal way it goes) the current market is an anomaly but the 30 year bond still pays 3 point something per cent. a 70 year bond pays a higher rate. in a historical context 5% is low. add to that the insurance actuary model(people paying and not collecting because they died or they make too much money or other conditions) and 5% is very low.

the quasi bank set up is easy and the transition to this system will likely cost a lot less than perpetuating the current model.

mind you the number looks large but in 70 years that number will actually be a lot less in today's money but likely enough for a poor working stiff to feed himself after working for a lifetime.

It's the predictable consequence of the past 30 years of artificial "growth" caused by reckless interest rates set by the Fed, coupled with the legislative changes to banking regulation which made it possible for our big banks to do whatever they wanted with deposits in order to juice profits.

The stock market hasn't gone anywhere in 25 years. Your notion that it is "anomalous" that the market doesn't grow is based on pretending that very brief period of time after World War II in which the USA was the sole "first world" industrial superpower represents the "baseline" of economic growth.

That's never coming back--the US will never find itself in that situation again. Your "conservative 5% return" is a FALSE ASSUMPTION.

Key observation. Helps destroy the 1% argument that raising taxes on them would only marginally increase the gov revenue. After all, their being forced to pay that extra marginal increase also forces them to confront what the 99% confront daily. Could cause a game-changing viewpoint shift by "the very best people".

Privileges like tax loopholes are there to immunize the the very persons who compose the laws and regs. Some club!

Let 'em taste their own medeccine.

P.S. What's a $50 parking ticket to a millionaire? Or $10,000 for lawyers to get charges reduced to wristslaps? Perhaps better to fine as percentage of one's income, as done in Finland. [Or was done. A Nokia exec [[2001?]]got a $400,000+ speeding fine, later reduced on appeal.]

I am 61 years old, & I will be eligible to collect SS next year. I have paid into it since I was 15 (46 years). I have paid in the max every year for 31 years. (I also have a private pension & 401K plan)

Is this an entitlement program for me ? Or did I pay into it, and should I reasonably & fairly expect to get a benefit out of it ?

I am sick of stupid F'ing authors calling this an entitlement program like it is a welfare program, BUT I'd be happy to let them call it "that" if the SS system hadn't sucked thousands & thousands of dollars out of my checks for over 4 decades.

Have you figured out what your rate of return is? Pick a reasonable lifespan (from the actuarial tables, family life history, or whatever); multiply by 12 by check amount; calculate interest rate that generates estimated return from schedule of payments. Your answer is probably going to be around 1%, possibly less, maybe a little more.

What investment would you have willingly bought for that rate of return? Oh, and don't forget to adjust for inflation: those dollars you put in at age 20 don't buy as much at 62.

The others above are correct: you have been ROBBED. The fact that your goverment did it doesn't make it right, but it's true.

I don't find it unreasonable for you to collect every cent you can; all you can get is pennies compared to what you COULD have earned, investing it. Just please, please, let it end with you: don't vote for any politician who wants to continue / expand / "revitalize" it, whatever is done will be as bad or worse than what's here now.

Let your children and grandchildren be free from forced collectivist retirement programs that cheat them of their wages for little or no benefit.

The stupidest thing I have read in a long time. Be careful what you wish for, you might just get it.

Socialism creates envy - this is why Obama is so keen on class warfare.

A Russian farmer is plowing his field and unearths a brass lamp. He rubs the lamp and a genie appears. "I will grant you a wish. However, whatever the wish for, the neighboring farmer will get twice as much."

america can not create good jobs at good wages thus medicare is essential to our society big time medicine may not cure you but they hire your unemployables want to see what an american city looks like without hospital jobs check out camden nj (the jobs are in philly) this country without phony disability would be filled with starvation what bruce & stan don't get is that once it was decided to destroy the middle class (globaliztion & deregulation) the safety net can't be removed even if it is unaffordable

Don't worry. The guys who own the show know providing the dole is far cheaper than make-work jobs. The jobs are leaving, but the dole isn't going anywhere.

Guys like Bruce just make a proposition to the guys who own the show. The proposition is this: "If we can guilt or cajole some of the $$$ spent on the dole out of the recipients, can we split the take with your Lordship?"

Walmart could lose $ the next 20 fucking years, employees will get fucked, the owners might gradually come out of their 10 mile long line of coke hi and have a heart attack finding out they only have a few trillion bux left.

"I've felt alone the past 4 years while writing articles on a weekly basis trying desperately to make the point that SS is at the heart of America’s economic problems. I have been vindicated."

Kinda? It's a debt problem, I agree. But debt, that's the heart. Setting SS aside and saying "that's it" ignores other big chunks, like Medicare/Obamacare, defense, welfare, interest on debt, and govt. pensions. SS is about 20% of that heart; let's not ignore the other chambers.

Social security is not a ponzi scheme any more than any type of lending is. You lend money so it can be spent. That's why I am an equity investor for the most part.

How about letting Social Security invest in the primary home mortgage market? Strict underwriting, full recourse against borrowers, etc. Then they will not have to rely on future taxpayer revenues to earn a return.

Keep the Fed from feeling determined to hammer rates...and the economy..."to zero at all costs." I've already seen the estimates for how high my taxes will soar for Obamacare...and that number is HUGE. It's time for the hard choices...stretch those dollars Big Government Guy. We the People have been busted because of this stuff.

If 2 % payroll tax rollback is what is killing retail then what about 24 to 30% interest rates on the nearly unavoidable borrowings that keep piling up inspite of their trying to keep them in check.All this while the inter-bank lending rate is close to ZERO.

The problem with means testing is you're going to have to go very deep into the population to make any difference, because everyone gets the same relatively small benefit. It's not like taxing the one percenters more, which can make a big difference because they make 25% of the money. The top one per cent of SS recipients only take one percent of the benefits. You're going to have to cut out the top 25% to save 25%. I think a lot of those people need the insurance of SS.

I think a solution with more "leverage" is to remove all caps on the SSI tax, and apply SS taxes to capital gains. Of course, that would make it very obvious that this is really a wealth distribution scheme.

Krasting, I'm going to stop beating on you and laugh at you instead! Yr a walking GOP talking point. The Paul Ryan Moron Club already has enough members: Paul Ryan. Why join? Stick with bonds, leave the 'politics of stupid' to professionals!

Look at Greece (among other Euro-countries): safety net blown out, pensions looted, banks that held private accounts are bankrupt, no tax collection to speak of, a (non)government ... it should be a WalMart paradise, right? Instead, Greece is on the way to becoming Yemen. Look @ Spain, Portugal, Ireland ... France? Social safety nets are vanishing. Tax receipts are dropping like a stone ... so is GDP. Is that the fault of US Social Security?

What happened in 2007 with Social Security that triggered the Great Finance Crisis? Was it payroll taxes ... or was it bad mortgage loans in Cleveland, Ohio and Long Beach, California? How about crude oil prices doubling then doubling again within 6 years? How about corrupt rating agencies and monoline insurers, poorly underwritten CDSs, Lizard-like TBTF bosses and brain-dead central bankers?

How is Social responsible for a massive, multi-decade credit expansion? Was the credit for retirements or was it for bankster bonuses and shadow banking? Are you a serious finance analyst or an embarrassment? You're making me look bad: I have to tell my mother I play piano in a whorehouse!

The problem with YOUR economy is at the end of your driveway, I've been saying this for longer than 4 years and I feel vindicated! I'll tell you something else: what's underway is the decarring of the world and it is going to get a whole lot uglier a whole lot faster than you think!

'Conservatives' love their cars, they hate Social, not hard to see which stance is easier.

@ Bruce:

"The changes required to achieve the reduction in taxes have been discussed for years."

Republicans have been trying to overthrow Social since 1935. Stop being vindicated, you weren't alive in 1935.

There has to be changes in age eligibility over a longer period of time.

The claim that people live longer now is false: the death rate changed when infant/childhood mortality rates declined after WWII particularly when polio vaccine was put into service. If you survived childhood, you lived as long in the 1940s and elders live now.

In the long run, we're all dead! What's the rush? Is the US government really going to go out of business? If so why not cut all agencies and departments? How about low-cost health programs instead of the Mafia racket we are stuck with now? How about ending all subsidies for automobiles and auto industry dependencies?

Changes to inflation adjustments have to be made.

The bulk of recipients gain little from indexing and live @ the poverty line. Doe it really benefit the country if elders become destitute?

There has to be an immediate means tax on benefits to fill the Baby Boomer bucket. The means test HAS to be based on both income AND assets. You can’t be a multimillionaire and get SS checks. That has to stop. Now.

Divide beneficiaries into to two categories: the 'prudent' who have saved for retirement and therefor don't need benefits and the 'imprudent' who didn't save and therefor don't deserve any benefits. The deserving don't need so they don't get and the undeserving don't get, either.

The deserving are paid off elsewhere in the tax code.

Mom and Dad can eat at a soup kitchen, right? "Are there no prisons? ... And the union workhouses - are they still in operation?"

SS is, and always has been insurance. If you don’t need the insurance, you don’t get paid.

The Krasting Insurance Company: pay the premium, deny the claim.

IMHO if individual payroll taxes were cut 50% from the current level, the economy would prosper. Unemployment would fall, incomes would rise. Federal tax revenues would increase, in the process, the deficits would fall. A permanent reduction in payroll taxes is the only chance I see for a sustained expansion of the economy.

Good grief, Bruce are you really this dumb or do you practice? a) The GOP 'voodoo economics' supply-side Laffer-curve nonsense has proven over and over to be bullshit, b) 3% or 5% or whatever% reduction from individual tax liabilities flows straight into gas tanks. $4 gas is killing all retail including Walmart.

Just this once I will say that what is good for Walmart, is also good for America.

What you are REALLY saying is, "What's good for China is good for America, " Thanks, Mitt ...

Stan Druckenmiller (ex Duquesne Capital) was on TV last night with Maria Bartiromo. He said the same as I have. It’s idiotic that he gets a check from SS.

Why did Druckenmiller apply for benefits if he didn't need them? B/c he can be on both sides of the issue: to oppose benefits whilst being a greedy Wall Street pigman at the same time. The solution for Druckerman and equally hypocritical Warren Buffett is to feed them both into a woodchipper ... feet first.

BTW: I'm elegible for for Social and don't take it. I have no intention of taking it even though I paid tens of thousands into it.

Hard times are coming and the country needs everyone to help each other out: throwing our elders to the wolves does not do so, it creates creates unnecessary enemies instead.

We aren't in anything. Good grief, Bruce! There is a big difference between not ordering the dessert and having all the desserts in the restaurant stolen out of the back in a truck.

Druckenmiller is the ultimate hypocrite: "Poor me, look at the free money, isn't it terrible? Aw shucks, it's wasted on a (bit of animated bloatware) like me, maybe I should feed it to my dog or something!"

I didn't bring him into the conversation, you did. Druckerman is poison, not a good example of anything other than tycoon arrogance and hubris.

LOL, I love these posters that fall for the rhetoric and propaganda and ACTUALLY believe there is really any substantial difference between the two putrid parties. So long as that is the case, we are doomed. COOL-AID DRINKERS UNITE!

Let's look at the GOP for a minute. Their conundrum is: how to serve the corporations' every whim without becoming a permanent rump party and a joke? The traditional Karl Rove Lee Awater method is to create wedge issues that anger voters and get them to vote against the Democrats. So issues like abortion, gay marriage, gun rights, the supreme court, immigration or school prayer are promoted, but the Republicans have no intention of actually dealing with these issues. Their corporate masters would never allow it.

These issues are now tired and don't work. Time to find some new ones. Enter generational warfare. The Repubs like that one because they have zero appeal to today's youth.

I'm a Canadian and I normally like reading Bruce's commentaries and mostly agree with them. But I can't agree with this latest one in one respect. Yes, SS is a ponzi scheme and it badly needs to be fixed...... hope you Yanks get it right and very soon.

In Canada we have something similar and it's called CPP (Canada Pension Plan). And I have contributed to it since it was started back in the 60s. Wasn't voluntary and was always promoted as part of a person's pension income. I am now retired and living off my savings/investments and CPP plus the official Canadian pension called OAS (Old Age Security .... pays a small amount monthly).

What I disagree with is the means testing. I have scrimped and saved all those years and now have a good personal nest egg to rely on. But that was because I was frugal. Question is why should I be penalized by means testing just because I built up a nest egg? Those other buggers lived the extravagant lifestyle with all the fancy goodies and great vacations and never set a dime aside. And now you want me to subsidize them. Not a frigging chance in hell !!

Bruce is so wrong on this. There is something called responsiblity and if you're not responsible, then tough luck !!

Lastly, what Stan Druckenmiller should do if he doesn't want to collect his SS is to donate it back. Sounds very democratic to me.